ICI survey: Americans back tax breaks for retirement savings

Most also want Congress to keep 401(k), IRA tax deferrals, no caps on employer contributions

Feb 6, 2013 @ 3:44 pm

By Mark Schoeff Jr.

ICI, retirement, tax, congress, obama
+ Zoom

Just as President Barack Obama is calling on Congress to close tax loopholes and deductions to reduce the deficit, a major financial markets trade association is touting a survey that shows a majority of Americans don't want lawmakers to change tax incentives for retirement savings.

A poll of 4,000 U.S. households conducted by the Investment Company Institute found that 85% of the respondents disagree that Congress should eliminate tax deferrals associated with defined-contribution retirement products such 401(k) plans and individual retirement accounts.

By similar margins, respondents rejected curbing retirement tax breaks. In the survey, 82% of all respondents opposed reducing individual contribution limits, while 79% opposed limiting employer contributions.

The survey, which was conducted between mid-November through the middle of January, showed that 79% of the respondents agreed that maintaining retirement-savings tax breaks should be a “national priority.”

“More than 80% of DC-owning respondents said the immediate tax savings from their retirement plans were a big incentive to contribute,” said the report, scheduled to be released Thursday.

The ICI is attempting to convince lawmakers that such sentiment is pervasive as it tries to protect retirement-savings tax deferrals during congressional deliberations over tax reform and deficit reduction. Republicans and Democrats are eyeing hundreds of millions dollars annually of so-called tax expenditures — deductions and other breaks — for a variety of potential purposes, including lowering individual tax rates and paying for reductions in social-insurance programs.

On Tuesday, Mr. Obama promoted the idea of slicing tax expenditures, although he did not specify which ones he had in mind. In his 2012 budget, Mr. Obama proposed capping tax deductions at 28%.

Such a limit would undermine the ability of 401(k) plans to build retirement savings at a time when accumulating retirement assets for an aging population should be a priority, according to Paul Schott Stevens, ICI's president and chief executive.

“It would have the effect of eroding interest and participation in the 401(k) system — and that would be a tragedy,” Mr. Stevens said.

The ICI has been conducting its retirement-savings study annually for five years.

Over those years, ICI retirement-savings polls have shown that Americans tend put money into 401(k) plans and leave it there.

For example, a separate ICI survey of record keepers conducted between January and September 2012 and covering more than 24 million accounts found that just 2.8% of participants took withdrawals in the first three quarters of 2012, compared with 3.7% in 2008. About 2.1% stopped contributing in 2012 versus 3% in 2008.

“What the research suggests to me is a strong conviction around these plans and a high degree of satisfaction with their core features,” said Mr. Stevens.

Defined-contribution plans have become an important way for Americans to build their nest eggs, which they're doing consistently, according to Sarah Holden, ICI's senior director of retirement and investor research.

Overall, 63% of respondents and 76% of those holding 401(k) and similar retirement plans had a favorable opinion of the vehicles. Of the total $19.1 trillion in retirement savings in the United States, about $3.5 trillion is in 401(k) plans and $5.3 trillion is in individual retirement accounts.

“About nine out of 10 households with [defined-contribution] accounts agreed that these plans helped them think about the long term and made it easier to save,” the ICI report stated. “About half of DC-owning households indicated they probably wouldn't be saving for retirement if it weren't for their DC plans.”

In talking to lawmakers, Mr. Stevens said that he stresses that retirement incentives are tax deferrals — with participants paying taxes when they withdraw money from their accounts — rather than deductions or exclusions like those for mortgage interest and employer-provided health care.

“There is a very broad understanding on Capitol Hill of the strength and success of the 401(k) system,” Mr. Stevens said. “Having said that, we're in an environment in Washington where the search for revenue is on in earnest.”

The fiscal cliff bill delayed automatic spending cuts by two months in part by allowing 401(k) participants to switch more easily to Roth 401(k)s, providing the government with immediate tax revenue. Money is taxed when it is put into a Roth account, but then grows tax-free.

Retirement incentives are “obviously on their minds,” Mr. Stevens said of legislators.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

3 themes shaping your business now

If there are three overriding themes for advisers right now its succession planning, acquisition and hiring millennials. Financial adviser James Loftin discusses how his firm is tackling all three.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

E*Trade acquiring custodian Trust Company of America

Discount broker buying second-tier custodian for $275 million.

Another thousand Dow points higher, and investors yawn

Market milestones keep falling like dominoes, with 51 records broken so far this year.

LPL retains $570 million with super-OSJ deal

Kansas-based nVision Wealth will come under supervision of Chicago-based IHT Wealth Management.

How does your advisory firm stack up?

Comparing a firm's pay to the competition can point out vast flaws.

10 signs your client is cheating on you

Sure signs that clients may be on the way out the door.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print